BLUE BOOK Market Report JUNE 2012 NEW-CAR MARKET ANALYSIS: Continued

In This Issue: www.kbb.com NEW-CAR MARKET ANALYSIS SAAR Levels in May as Industry Sales Increase 26 Percent Year-Over-Year

Economy Shows Signs of Weakness; More

BLUE BOOK USED-CAR MARKET ANALYSIS JUNE Kelley Blue Book Analysts Expect Further Declines in Market Report 2012 Used-Car Values as New-Car Market Heats Up Fuel Sippers Lead to Declines; More

Analysis from Kelley Blue Book’s Analytic Insights Team LATEST HOT USED-CAR REPORT In Down Economy, Used-Luxury Vehicles Up

NEW-CAR MARKET ANALYSIS:

SAAR Levels in May as Industry Sales Increase 26 Percent Year-Over-Year - Alec Gutierrez, senior market analyst, automotive insights, Kelley Blue Book

lthough the overall sales pace slowed last month, Kelley Blue Book believes demand will remain strong Daily Selling Rate Reaches New High A enough to carry sales beyond 14 million units in 2012. 60,000 Most manufacturers appear to share this sentiment and have 50,000 indicated the steps necessary to increase production and meet anticipated demand through the year. 40,000

30,000 Industry sales hit 13.8 million seasonally adjusted annual rate (SAAR) in May, slightly below the blistering 14.4 million unit 20,000 sales pace of March and April, but a healthy 26 percent above 10,000 the tsunami-reduced 11.7 million SAAR from last year. The daily selling rate was more than 51,300 vehicles per day, a 16 0 percent year-over-year increase and the strongest selling pace since May 2008. Source: KBB Automotive Insights & Automotive News Ford announced plans to increase North American production by 5 percent in the third quarter to a total of 690,000 vehicles. Without laying out any specifics, Chrysler also indicated they are looking to add production capacity wherever possible to meet demand. Pent-up demand continues to play a pivotal role in the industry as evidenced by the strong results through Memorial Day weekend, despite less than favorable economic news.

Economy Shows Signs of Weakness as Auto Sales Continue to Surge

s economic recovery slowed, consumer confidence (a vital barometer of economic health highly correlated to vehicle sales) Job Growth Slows has taken a hit. The pace of the economic recovery has been 600 A 500 far from ideal and actually showed signs of slowing in May. Weaker- 400 than-expected reports in the labor market and housing sector, along 300 with increasing fears of destabilization in the European Union, drove 200 down stock prices nearly 10 percent in May. Through the first week in Month 100 - June, markets responded positively to a statement by Federal Reserve 0

Over -100

Chairman Ben Bernanke, where he indicated that the Federal Reserve - stands at the ready to intervene if market conditions further deteriorate. -200 -300 Month Thousands of Jobs Gained/Lost Gained/Lost of Jobs Thousands Source: BLS NEW-CAR MARKET ANALYSIS: continued

Another key indicator is the Consumer Confidence Index, which declined for the fourth consecutive month in May, at Employment Remains Well Below Peak

140,000 64.9 (1985=100), down nearly 4 points from April. The Present - Situation Index also remains uncomfortably low, at a reading 138,000 136,000

just shy of 50, and the Expectation Index is below 80, indicating consumers generally are unhappy with their current situation but 134,000 remain hopeful. All of these indices show a possible decline in 132,000 demand for big-ticket items like new vehicles. 130,000 128,000Thousands Perhaps the most troubling news in May was the jobs report 126,000 released on June 1. After several months of declines, the Total Employed in the U.S. 124,000 unemployment rate edged slightly up to 8.2 percent. Only 69,000 Jul-09 Jul-08 Jul-10 Jul-11 Apr-09 Oct-09 Apr-10 Apr-08 Oct-08 Oct-10 Apr-11 Oct-11 Apr-12 Jan-08 Jan-09 Jan-10 Jan-11 jobs were created in May, well below the more than 250,000 jobs Jan-12 created in January and February. More than 800,000 jobs were Source: BLS created through the first five months of the year, a seemingly substantial gain. However, this is only a drop in the bucket when we consider that the economy is still 5 million jobs shy of pre-recession levels. We should note that job growth slowed similarly last year on fears of the European Debt Crisis negatively impacting United States financial markets. After stalling from May through August in 2011, job growth picked up in September as the situation in Europe improved.

The economy likely will avoid a double-dip recession if job growth remains positive, but if growth remains on its current course, it may be several years before the economy fully recovers. Until that time, auto sales will fail to return to the 16 million unit per year norm of the 1990s and 2000s. Although sales have improved steadily since 2009, we may be nearing a plateau until the economy is on more stable footing.

Pent-Up Demand, Loose Credit Drive Sales Growth

he economic recovery, reported to be underway, has lost momentum in recent months and sales have been carried primarily by pent-up demand. In addition to consumer demand, attractive finance offers and loosening credit standards have been crucial to sales momentum despite the gloomy T economic headlines. Consumers are returning to the market in droves after being forced to the sidelines in 2011 when inventory shortages stemmed from the earthquake and tsunami in Japan. In addition, a large segment of buyers either were not impacted by the downturn or have grown tired of waiting for a full-fledged economic recovery or a resurgence in home values, and have opted to ditch their 11-year-old (on average, according to Polk) vehicle to purchase something new. Significantly improved redesigns have enticed many hesitant buyers to finally cash in on near-record-high trade-in values to upgrade to a new model.

Those shoppers pulling the trigger on a new-vehicle purchase were greeted with increased credit availability and record low interest rates. According to Experian, the average credit score on new-vehicle loans hit 760; the lowest average score in five years. Subprime borrowers made up 44.4 percent of all new-vehicle loans in the first quarter, still below 46.2 percent from 2008, but the highest recorded share since that time. As banks continue to make credit more accessible, we expect the industry will see new-vehicle sales maintain a steady course. Affordable credit alone will not be sufficient to drive sales growth indefinitely, especially as pent-up demand levels off in the months ahead. Before the industry can rise to 16 million sales per year, we will need more significant and sustainable growth in the economy.

Oil Prices Slide on European Recession, Weak Economy; Gas Price Drops Impact Fuel-Efficient Vehicle Sales

il prices dipped below $85 per barrel for the first time since October of last year, as the unemployment rate in the Eurozone hit 11 percent and fears of a prolonged European recession resurfaced. While cheaper gas certainly is good news for consumers, the ongoing troubles in Europe should be O cause for concern. Mario Draghi, president of the European Central Bank, recently chastised European leaders for not acting swiftly or forcefully in response to the ongoing sovereign debt crisis, going so far as to say the Eurozone had become “unsustainable” in its current form. Of particular concern are the fates of Greece and Spain, and the possibility they could default on their loans or withdraw from the Eurozone altogether. The debate continues as to whether this would spell disaster for Europe or merely register as a blip on the radar. Regardless of the outcome, it is clear that the European recession has a long way to go before it is resolved, and the fallout could be far-reaching. In the short term, the current downturn in Europe has lessened demand for crude oil, which has played a role in the most recent price declines for oil.

2 BLUE BOOK Market Report JUNE 2012 NEW-CAR MARKET ANALYSIS: continued

In addition to a decline in European demand, oil prices YoY Since April also have been impacted by weak growth of the United Jun 06, 2011 Apr 02, 2012 Jun 07, 2012 $ % $ % States economy and rising stock piles of crude oil. A Fuel Prices $3.78 $3.94 $3.58 -$0.20 -5.3% -$0.36 -9.2% recent release from the Department of Energy reported Oil Prices $100.92 $105.12 $83.67 -$17.25 -17.1% -$21.45 -20.4% Source: Energy Information Administration (EIA) that United States crude stockpiles are at a 22-year high on weak demand from consumers. With oil prices sliding, we may see fuel prices approach $3.00 per gallon by year-end. Fuel prices currently stand at $3.60 per gallon nationally, more than $0.30 per gallon cheaper than the peak in early April. Cheaper fuel prices already had an impact on fuel-efficient vehicle sales in May. Both subcompact and hybrid cars lost a half point of market share in May, while compact cars and crossovers increased by the same amount. Consumers remain mindful of fuel prices and clearly still prefer fuel-efficient vehicles, but with gas prices falling fast, they are less likely to sacrifice utility by opting for a subcompact or pay a premium for a hybrid or electric vehicle.

USED-CAR MARKET ANALYSIS:

Kelley Blue Book Analysts Expect Further Declines in Used-Car Values as New-Car Market Heats Up

sed-car values dipped 3 percent in May due to falling oil prices and strong demand for new vehicles. During the next three Used-Car Values Begin to Soften months, Kelley Blue Book analysts expect used-vehicle values U $20,000 $18,514 $17,836 will continue to decline by as much as 6 to 7 percent as the market $18,000 $15,831 $16,000 continues to cool with softening demand and slowly improving $13,659

Old Vehicles) $14,000 supply conditions. - $12,000 Year - $10,000 The market has finally reached a point where we are seeing the $8,000 first year-over-year declines since 2009. Although values remain $6,000 more than 20 percent higher than they were in 2009, values are 3.7 $4,000 percent lower than this time last year. As new-vehicle sales have $2,000 increased, demand for used cars has dropped off. A used car has been $0 2009 2010 2011 2012 traditionally viewed as a substitute good, appealing to those who don’t KBB Auction Value - 3 (1 Source: KBB Automotive Insights have the means or desire to pay a premium to own a new car. Values are especially weak this year versus last year due to the inventory shortages resulting from the earthquake in Japan. With inventory no longer a major hurdle, Kelley Blue Book is seeing a reversal of this trend. The market has finally reached a A decline in used-vehicle sales is no surprise considering the current affordability of new vehicles. According to the latest registration data point where we are seeing the first available from Polk, used-vehicle registrations were 10 percent less year-over-year in March, while new-vehicle sales have continued to year-over-year declines since 2009. climb. This may turn out to be a one-month anomaly, but it also could signal the start of a growing trend. New cars have become During the next three months, more affordable after accounting for incentives, low finance rates and Kelley Blue Book analysts expect improved credit availability, and this likely will continue to suppress used-car values. used-vehicle values will continue Consumers have realized a new car is only slightly more expensive to decline by as much as 6 to 7 than buying a 1- or 2-year-old used car, and this has helped to not only bolster new-car sales, but lessen demand at auction and drive percent as the market continues down used-car values. to cool with softening demand and slowly improving supply conditions. - Alec Gutierrez

3 BLUE BOOK Market Report JUNE 2012 USED-CAR MARKET ANALYSIS: continued

Fuel Sippers Lead Declines, Poised for Further Drops

elley Blue Book Market Intelligence data has shown for KBB Used-Car Valuation Index (1- to 3-Year-Old Vehicles) years that as pump prices rise, consumer demand and sales 125 Fuel-Efficient Segments (CY2011) of fuel-efficient vehicles increase. However, as soon as gas Fuel-Efficient Segments (CY2012) K Market Average (CY2011) 120 prices start falling 20 cents per gallon or more, car buyers flock Market Average (CY2012) back to SUVs and trucks in droves. To that end, values of fuel- efficient cars declined 2 to 3 percent in May as consumer demand 115 eased with falling gas prices. The most significant declines came 110 from formerly hot hybrid-car segment, which dropped a more CY 2011 pronounced 4 percent. The 2010 Toyota Prius was hit especially 105 hard, dropping more than $1,200 in May. Even after this decline, the Prius still remains up $2,000 since the start of the year, and 100 likely faces further depreciation in the months ahead. Although 95 values of fuel-sipping vehicles have dropped in recent weeks, Kelley CY 2012

Blue Book does not expect as significant of a correction for those 90 vehicles as with the Prius. Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Source: KBB Automotive Insights Values of subcompact and compact cars should ease slightly through the summer, declining by no more than 2 to 3 percent per month before leveling off in the fall. As of June 1, compact and subcompact cars remain up 1.3 and 4.4 percent respectively since January. Although earlier in the year Kelley Blue Book anticipated more pronounced gains in response to rapidly rising fuel prices, the early peak in April quickly altered the company’s initial forecast. Hybrid cars such as the Toyota Prius are still due for a correction since they remain up 15.9 percent since the start of the year, so expect more significant declines for hybrids.

Chrysler Axes Town & Country, Still Dominates Segment

rossover sales have been hot during the past several Chrysler Minivan Sales Double Closest Competitors years as consumers have turned their attention to Sales Volume Fair Purchase Price the fuel-efficient people haulers as replacements Model May-12 YOY % YTD YTD YOY% $ Change % Change C Dodge Caravan 12,418 32% 58,063 26% $129 0.50% for their beloved yet inefficient SUVs. For consumers Honda Odyssey 12,348 31% 50,481 10.4% ($106) -0.29% seeking value, the minivan remains a viable alternative to Chrysler Town & Country 10,323 56% 48,830 24% $145 0.41% the popular crossover class and should not be overlooked Toyota Sienna 14,606 69.5% 48,257 5.6% $26 0.06% for those needing utility on a budget. Minivans face Kia Sedona 1,916 -22% 8,783 -1.5% $78 0.36% Nissan Quest 1,802 106% 8,746 108% ($504) -1.48% fierce competition from the wide array of crossovers now Mazda Mazda5 1,049 -36% 5,932 -41% $262 1.28% available, which outsell minivans nearly 6-to-1. Still, Volkswagen Routan 850 -40% 3,965 -22% ($902) -2.61% crossovers are hard pressed to match the space, comfort Fair Purchase Price reflects change since May 1 Source: KBB Automotive insights and convenience of a minivan, which are on pace to sell more than half a million units this year.

Chrysler has dominated this segment for several years with the Chrysler Town & Country and Dodge Grand Caravan, but recently they announced the Town & Country will be discontinued in 2014. Despite the announcement, sales and prices for both of Chrysler Group’s minivans were strong in May. Instead, Chrysler will focus solely on Dodge’s Grand Caravan, which was last year’s sales leader. So far this year, Chrysler’s minivans occupy two of the top three spots among minivans with the Grand Caravan up 26 percent year-over-year and the Town & Country up 24 percent. Consumers also are getting a smaller discount on these strong sellers. In May, the Kelley Blue Book Fair Purchase Price (what shoppers typically pay for a vehicle) went up $129 on the Grand Caravan and $146 on the Town & Country.

While the Grand Caravan leads all minivans in sales this year, there is fierce competition for the number two spot. Honda has aggressively pushed the Odyssey into second place after solid May sales, but its Fair Purchase Price also dropped by $106. Meanwhile, Toyota increased sales of its Sienna by nearly 70 percent in May to be the top seller of the month, but it remains up only 6 percent for the year. At the other end of the spectrum, the Volkswagen Routan, a rebadged version of Chrysler’s minivans, sold only 850 units in May, while its Fair Purchase Price dropped $902 on average.

4 BLUE BOOK Market Report JUNE 2012 USED-CAR MARKET ANALYSIS: continued Used-Luxury Crossovers Continue to Underperform the Market

emand at auction has dried up in recent months due to weakness in the European and North African economies, which are key export markets for SUVs. With the threat of a global recession hanging over the heads of consumers, and a pessimistic attitude toward the immediate future, it is not D surprising that demand for high-priced luxury SUVs and crossovers is waning in the used-car market. While lower values may make these vehicles more attainable at auction, dealers should be wary of purchasing these vehicles while consumer attitudes and expectations remain bearish.

While values for most vehicles weakened in May, used luxury crossovers and SUVs dropped more than most. From the beginning of the month, values for luxury crossovers fell by more than $2,000; $1,300 more than the next hardest hit segment. This translates to a 6.5 percent decrease from the beginning of the month, 2.5 points more than the next highest percentage decrease for any segment. Depreciation in this segment was led by the Acura ZDX, Lincoln MKT and Audi Q5, all of which fell by more than $1,000 for the month. May’s declines leave the luxury crossover segment down $3,150, or 9.4 percent, from the beginning of the year.

Although luxury SUVs dropped by a comparatively mild $600 in May, they are now down by nearly $2,200 and 4.9 percent since January. The Cadillac Escalade stands out as the hardest hit luxury SUV for the month, falling by more than $1,400 in May. A decline in export demand has played a key role in softening Escalade values. We expect further declines in the months ahead so we advise dealers to refrain from purchasing a luxury crossover or SUV unless a buyer is lined up.

With Carroll Shelby’s Passing, Vehicles Bearing His Name Expected to See Modest Value Increases - Phil Skinner, collector car senior market editor, Kelley Blue Book

n May 10, 2012, one of America’s most legendary motorsports Original Cobras with the small-block Ford engines reached a high-point figures, Carroll Shelby, took his last checkered flag as he around 2006 when the entire performance and muscle-car markets were alive O completed his race with life. In Shelby’s trove of main and a bit overinflated. Their values nearly reached the half-million dollar mark accomplishments are a number of cars that bear his name, all of them with a few examples exceeding that level, but later pulled back about 25 to 30 considered prized collectibles by enthusiasts of style and performance. percent when the economic crash of 2008 and 2009 hit. In recent months, it appears values were on the upswing prior to Shelby’s passing. Probably his most famous legacy was the original Cobra, born 50 years ago by marrying a small-block United States-built Ford V8 The legendary 427-S/C, which once skirted the $1-million level, fell back to to a British-built roadster produced by AC Cars Limited. Bent on the $600,000 range but has seen steady growth in recent months, particularly performance, he eventually would grow the little Cobra into the most since the beginning of 2012. Of course the grandest of all Cobras, the fearsome machine on the road; the mighty Cobra 427-S/C, which ate Daytona coupe of which only a handful were produced, saw its last known the competition as long as the driver could tame the beast. public transaction taking place in 2009, when one of these cars sold in excess of $7.6 million at auction. Kelley Blue Book expects this model to sell for In the mid-1960s, when Ford introduced the popular Mustang more at future sales. sport-compact, they wanted a special performance breed and gave the task to Shelby. This started a relationship that had a lot of ups and The Shelby Mustangs also cooled off during the 2008 to 2009 period, and downs over the years, but produced some of the most memorable sports have remained at a plateau for the past couple of years. Those that command racers. the most money are prototype test-beds or factory race-prepped machines, which have remained strong at or above the $300,000 level, while the more With Shelby’s recent death, many have pondered what will happen to pedestrian examples have seen value shifts from near $280,000 to below the the value of the vehicles bearing his name, in particular the Cobras and $150,000 range. However, savvy buyers can find popular models of this Mustang-based cars from the 1960s. sports car in the $100,000 segment with a little searching, which makes this a perfect buying opportunity. During the past 50 years, Carroll Shelby produced a number of legendary cars, and the early ones are historically significant vehicles Hundreds of Shelby owners today have this American legend’s autograph due to their racing and performance histories. With or without Shelby on the glove box door or under the hood. While this might not increase the around, these models should not only maintain their value, but also see value in Kelley Blue Book’s Early Model Guide, it will serve as a personal increases above market trends. memento of a truly great man, and that is priceless.

This commentary focuses on model years 2009-2011. The statements set forth in this publication are the opinions of the authors and are subject to change without notice. This publication has been prepared for informational purposes only. Kelley Blue Book assumes no responsibility for errors or omissions.

5 BLUE BOOK Market Report JUNE 2012 HOT USED-CAR REPORT:

In Down Economy, Used-Luxury Vehicles Up - Arthur Henry, manager of market intelligence and market analyst, Kelley Blue Book

Kelley Blue Book’s Hot Used-Car Report captures monthly used-car shopper activity on kbb.com, including a list of the top and bottom movers in the same time period. Results are provided by the Kelley Blue Book Market Intelligence Team, in an effort to help dealers better understand which used vehicles consumers are looking at most each month.

n May, kbb.com used-car shoppers flocked in droves to luxury vehicles and for the second consecutive month, all categories in the luxury cosmos have increased in share. Leading the charge this month is the luxury crossover segment, which grew 18.3 percent month-over-month in share. The increases I in this segment were driven by three models, all of which are among the top 10 performers: 2009 BMW X5, 2010 Acura MDX and 2010 Lexus RX. Another segment experiencing a lift in traffic is the luxury car segment, which jumped 12.9 percent month-over-month. The 2009 and 2010 model-year BMW 5 Series primarily drove interest in this segment. Additional trends gleaned from this month’s data include shifted interest away from 2006 model- year vehicles, as the majority of the top models losing share are from the 2006 model year. The value proposition for a six-year-old vehicle against newer used models is no longer enough to capture consumer attention.

Monthly Used-Car Shopping Activity Growth Monthly Used-Car Shopping Activity Growth Segments Top/Bottom 10 Models

2010 BMW 5 SERIES 67.0% Luxury Crossover 18.3% Luxury Car 12.9% 2009 BMW X5 45.6% Premium Luxury Car 5.8% 2010 ACURA MDX 43.0% Entry Luxury Car 5.6% 2010 HONDA CR-V 38.1% Premium Sports Car 5.4% 2010 LEXUS RX 36.7% Compact Luxury Car 4.7% 2009 BMW 5 SERIES 30.2% Full-Size Crossover 4.6% 2010 HONDA ODYSSEY 29.0% Compact Crossover 4.4% 2009 BMW 3 SERIES 27.1% Mid-Size Crossover 3.2% Luxury Sport Utility 2009 AUDI A4 25.1% 2.9% Minivan 1.6% 2010 HONDA ACCORD 23.4% Hybrid Car 1.1% 2006 BMW 3 SERIES -1.5% Mid-Size Sport Utility -0.1% 2006 HYUNDAI SONATA -9.7% Compact Car -1.3% 2006 MAZDA MAZDA3 -10.0% Full-Size Sport Utility -2.0% 2006 NISSAN ALTIMA -10.2% Mid-Size Car -2.5% 2006 AUDI A4 -12.8% Subcompact Car -2.5% 2006 HONDA PILOT -15.0% Full-Size Car -3.9% Full-Size Pickup Truck -5.2% 2006 SUBARU IMPREZA -15.2% Sports Car -5.4% 2007 CHEVROLET COBALT -15.3% High Performance -6.2% 2006 NISSAN SENTRA -16.8% Mid-Size Pickup Truck -6.8% 2006 CHEVROLET COLORADO -16.8% Van -10.1%

-100% -50% 0% 50% 100% -30% -20% -10% 0% 10% 20% 30% % Change in Share Month-Over-Month % Change in Share Month-Over-Month

Information based on 2010 to 2006 model year vehicles Information based on 2010 to 2006 model year vehicles

About Kelley Blue Book (www.kbb.com) Founded in 1926, Kelley Blue Book, The Trusted Resource®, is the only vehicle valuation and information source trusted and relied upon by both consumers and the industry. Each week the company provides the most market-reflective values in the industry on its top-rated websitewww.kbb.com , including its famous Blue Book® Trade-In and Suggested Retail Values and Fair Purchase Price, which reports what others are paying for new cars this week. The company also provides vehicle pricing and values through various products and services available to car dealers, auto manufacturers, finance and insurance companies as well as governmental agencies. Kbb.com provides consumer pricing and information on cars for sale, minivans, pickup trucks, sedan, hybrids, electric cars, and SUVs. Kelley Blue Book’s kbb.com ranked highest in its category for brand equity and was named Online Auto Shopping Brand of the Year by the 2012 Harris Poll EquiTrend® study. Kelley Blue Book Co. Inc. is a wholly owned subsidiary of AutoTrader.com.

6 BLUE BOOK Market Report JUNE 2012